High Performance Work Systems and Firm Performance

High Performance Work Systems and Firm Performance

Article excerpt

In today's competitive world economy, the strength of U.S. firms is increasingly dependent upon product quality and rapid adaptation to changing conditions. To survive in this environment, firms may choose to rely upon the creativity, ingenuity, and problem-solving abilities of their workers. To do so, they attempt to provide workers with the information, skills, incentives, and responsibility to make decisions essential for innovation, quality improvement, and rapid response to change. Firms taking this approach often are referred to as "high performance work organizations."

By way of example, take the case of delivery truckdrivers. Drivers can be assigned loads and routes by a supervisor. Alternatively, they can be made responsible for scheduling their own routes and for making changes. They can use their knowledge of customers and routes to inform existing customers of new services, acting as assistant sales representatives. They can participate in problem-solving groups to identify bottlenecks in processes, such as the morning's sorting of packages, that slow delivery. Installing communications equipment in trucks can facilitate teamwork to allow balancing of routes between couriers with unexpectedly large shipments and those with lighter loads, without the intervention of a supervisor. These work practices have been used by Federal Express couriers, and both the company and the workers appear to have benefited from converting ordinary driving responsibilities into jobs that require higher skills.(1)

While this example helps illustrate the types of work practices firms may adopt, the anecdotal experiences of a few firms are unlikely to be representative. The goal of this literature review is to ascertain whether high performance work practices are more generally associated with better firm performance.

Scope of the study

Many firms have implemented at least some high performance work practices.(2) In a nationally representative sample of 700 private sector establishments, 37 percent had a majority of front-line workers engaged in two or more high performance work practices.(3) Firms themselves largely look upon high performance practices as having been successful. Among Fortune 1000 companies using at least one practice that increased the responsibility of employees in the business process, 60 percent reported that these practices increased productivity and 70 percent reported that they improved quality.(4)

Many company initiatives, however, are piecemeal rather than systemic. The existing evidence suggests that it is the use of comprehensive systems of work practices in firms that is most closely associated with stronger firm performance.

This review of the effects of high performance work practices focuses on studies that use quantitative measures of productivity, quality, and financial performance that are comparable across firms. Many of these measures can be assessed at the plant or work group level, which allows detailed analysis of effects from changes in work practices. The review consists of two basic parts. First, it examines the effects on labor productivity of three specific practices - mining, compensation linked to firm or worker performance, and employee involvement in decisionmaking. Second, it examines high performance systems in which such practices are implemented together.

The review is limited to certain work practices. Some are not addressed due to the paucity of existing research; accordingly, the performance effects of family-oriented work practices, the provision of healthy and safe workplaces, and greater emphasis on employment security are not examined. The important role of technology in promoting high performance workplaces also is beyond the scope of this article.

The studies reviewed here demonstrate correlations between work practices and firm performance. The results are therefore suggestive, but do not prove causality. Some studies compare firms that already use high performance work practices and those that do not. …